Sunday, August 30, 2015

De-dollarisation of Kazakhstan Economy - some thoughts

I have read many news in the past that the President of Kazakhstan Nursultan Nazarbayev has stressed to work for de-dollarisation of economy. This means making people trust more on Tenge, and gradually phasing out dollars in local economy. This is absolutely required as highlighted by US Ambassador recently where he urged people to think in "Tenge".

I am writing on Kazakh Tenge for the past few weeks and had promised in this post that I will write something on what Kazakh Government can do. Here is my post on how to achieve de-dollarisation in Kazakh economy and its advantages.

I had mentioned previously that Kazakhstan is too liberal to allow to hold foreign currency to domestic population and there is a need to tighten legal provisions in the country to introduce de-dollarisation. I will argue it with some examples.

Let us first of all see what authorities are saying on the need of "de-dollarisation".

Here is a news published in Astana Times mentioning that the National Bank of Kazakhstan Head (National Bank Chairman Kairat Kelimbetov) is committed to do de-dollarisation step by step. Two interesting things have been mentioned in the news. They are: 1. there is no attempt to stop the dollar transaction completely, 2. the prescribed rate of interests in USD deposit can not be more than 3%. These attempts are partially good. The similar news was reported by

The news have also said that Kazakh authorities have mandated that the prices of the goods should be compulsorily mentioned in Kazakh, and not in USD.

Now, let me prescribe some ideas how Kazakhstan can implement de-dollarisation in this country.

1. Stop foreign currency deposit schemes: What I have seen in Kazakhstan is that it's easy to open fixed deposit bank account in foreign currencies (like in USD, EUR, GBP etc.) by anyone if he/she has a tax number. It is very shocking. Yes, it was a shocking revelation to me as in India, foreign currency account is not popular as there are restrictions.

In this respect, Kazakhstan is very liberal and it needs to move to slightly restricted regime.

So, it is time not to allow anyone (at least to citizens and permanent residents of Kazakhstan) to open fixed deposit in foreign currency. Therefore, government of Kazakhstan should give notice to all foreign currency deposit holders to convert their deposit to tenge within say 6-9 months and on certain cut-off date, the deposit will automatically convert to tenge account by applying the market rate of exchange of that day. National Bank of Kazakhstan can instruct with respect to rate of interest for such deposits which are made from conversion of foreign currency to Tenge. It may look harsh but this is in national interest and is absolutely required.

There can be small exceptions in this regard like in India but this exception will not be popular. This will have a positive impact on de-dollarisation policy of Kazakhstan. In India, there is a concept called Resident Foreign Currency (Domestic) Account. It can be held by residents as current accounts in foreign currencies. So, first of all, this will be a current account and no interest will be paid. Secondly, in India, only maximum amount of USD 2,000 per person can be deposited in Resident Foreign Currency (Domestic) Account. Kazakhstan can replicate the similar model where per person 2000-5000 USD may be allowed to be kept in Resident Foreign Currency (Domestic) Account. I am sure such accounts where there will be no interests given will not be popular among the Kazakh masses and it will bring a positive impact on the de-dollarisation.

When it comes to Resident Foreign Currency (Domestic) Account, Kazakhstan can replicate the similar model as in India. For example, what should be the source of money which goes to Resident Foreign Currency (Domestic) Account? Can you buy some foreign currency in the bank or in open market and open a Resident Foreign Currency (Domestic) Account? The answer is "No" in India.

The Resident Foreign Currency (Domestic) Account in India should be funded out of foreign exchange repatriated from abroad. So, the source of such foreign currency should be abroad. For example, you could have sold your shares, or property outside the country, or should have got as a salary or wages outside country, or should have received as gifts/presents from someone outside country. Therefore, only such foreign currencies which were earned or gained outside Kazakhstan should be allowed to form part of Resident Foreign Currency (Domestic) Account in Kazakhstan to achieve de-dollarisation

The source of fund for Resident Foreign Currency (Domestic) Account can also be such foreign currency which is legally acquired for travel abroad and brought back unspent. However, such amount should be within the overall cap/limit (say USD 2000-50000).

2. Control Foreign Currency Exchange Facilities: Let me narrate my experience from India. I have never been able to buy foreign currency from Government Banks/Public Sector Enterprises Bank/PSU Bank/ Banks owned by Governments in India. I am not saying it is wonderful. Indian practice is too rigid. When it comes to Kazakhstan, I find it too open and liberal.

In India, the private money exchange rate determined by individuals freely will be unfavourable to the public but most of the times, they are the only source of buying forex. If you manage to go to Private Banks, they will sell forex after some inquiries but will make you go through the documentation.

As compared to Indian practice, the practice in Kazakhstan is very smooth and easy. You can go over the Counter of any bank or private money exchange and can easily sell or buy foreign currency in Kazakhstan. I feel there is a need of slight restriction on this practice.

One practice they can bring from India is requirement of having valid Visa before buying Forex and requirement of proof of recent Visa/travel from foreign countries. This will check a lot of forex transactions. I know a country like Nepal, where the forex seller has also to stamp on the last page of passport (Nepali Passport Holder) mentioning the amount of forex bought by him in Nepal. So, Kazakhstan can think of mixed model while buying/selling of forex. At least, it can make holding of Valid Visa mandatory to buy foreign currency with certain exceptions when the buyer is intending to travel to Visa free countries.

3. Prohibition on Loan facility in Foreign Currency: I have read that almost 30% of Kazakh loans are in foreign currency. This is surprising to me as why a Country like Kazakhstan having its own Currency - Kazakh Tenge - needs to make loan facility in foreign currency. The people who have taken loan on USD/foreign currency are going to get suffered by this current devaluation and it may bring some instability in financial market as certain portion of debt may be "bad debts". Therefore, there is a need to put strict guidelines on extending loan facility in foreign currency.

I will draw my example again from India. In India, only those businesses which are engaged in imports-exports of goods and services are allowed to take loan on foreign currency. The bank will extend such loans only after studying the credit rating of those businesses. The credit ratings are obtained from International Credit Rating Agencies. Therefore, in practice only the well established big business houses/corporates can avail the facility of loan in foreign currency in India.

For the common man who wants to buy the flat in Mumbai or Delhi, or even the housing colony developer can not access such loans. Whereas in Kazakhstan, any normal salary earning person can get loan in USD and I have seen even a medium scale businessman getting loan easily in USD/foreign currency. I think Kazakhstan should think of revising its policy.

Kazakhstan must implement above three policies among others for de-dollarisation of Kazakh economy.

Let me know what you think!

Monday, August 24, 2015

How Russia and China are affecting Kazakhstan and its currency #Tenge?

By this time, you must have been made aware by someone (by TV, FM, by Internet) that on August 20, Kazakhstan allowed its currency tenge to devalue and left the exchange rate to markets. That means the past practice of maintaining currency band by the national bank has been abandoned. This new development of Kazakh policy has pushed #tenge from 187 per dollar to 255 per dollar.

Mostly, why economies expand or contract depend mostly on its own economy like situation of forex reserves, ability to pay its external loans, export data, industrial output data, local/domestic economy etc. All these factors are responsible this time to bring tenge down from 187 to 255.

However, it must be understood that there were few external factors responsible for devaluation of Kazakhstan Tenge. First of all, the reduction on price of oil was the biggest culprits as it has affected the foreign currency earnings of Kazakhstan. On this scenario, Kazakhstan could not have done much as prices of crude oil is falling everywhere and it is not on its hand. War will help to put the price up but that is not a desirable option and it is unlikely any major war anywhere in the world will erupt any time soon. Ok! I am kidding. The point is Kazakh Government does not have much say on its stumbling prices of oils. This had definitely put pressure on Kazakh #Tenge and it had to be devalued slowly.

On the top of this pressure, the move by Russian and Chinese authorities to let it devalue/devalue their currency added extra pressure on tenge. The exports from China and Russia became cheaper due to sliding of Yuan and Rouble and #Kazakhstan had no other options than let the #Tenge devalue. Government has adopted a good mechanism by handing the currency to the market forces so that tenge can find its stability there.

You must be aware that #Kazakhstan #Tenge is not the only currency that has devalued due to China's deliberate move of devaluing Yuan. Due to China's deliberate move, and due to Russia's free falling #Rouble, other Asian countries' currencies are also falling either by market forces (where free floating exchange rate is adopted) or government is intervening to devalue them.

For example, look at this Bloomberg Article which writes on the devaluation of Vietnamese currency (dong) by government and losses made by other currencies like of Rand (South African Currency) and Lira (Turkey's Currency) in markets. The article also talks of chances of devaluation in other countries' currencies. So, it seems currency devaluation is a global phenomenon at the moment.

This is the last part of my commentary on #tenge devaluation by Kazakhstan in 2015. I will closely watch the Kazakh currency market and will come with other articles soon in the future. So, If you are keen to know more on Kazakh Currency devaluation, keep visiting my blog.

Sunday, August 23, 2015

Challenges for the Kazakhstan Economy and to the Kazakh Tenge

You can read this article in Chicago Tribune which summarizes the current economic situation in Kazakhstan. On the light of yesterday's (20 August, 2015) decision of Kazakhstan Government and National Bank of Kazakhstan not to intervene in the exchange rate determination, the Kazakh currency #tenge has fallen by 30% to 255 KZT/Dollar. Since the Kazakhstan has adopted completely free market model and has opted for free floating exchange model, any further appreciation or depreciation of #tenge will depend mostly on the economic conditions of the country. On 21 August, 2015, #Tenge was seen selling in Astana for 237 KZT/USD and thereby has recovered by small margin.

Let us think of what are the factors that have bearing on rate of #tenge in the future:

1. Probability of earning of foreign currency: Kazakhstan's biggest export is natural oil & gases. Kazakhstan earns maximum foreign currency by exporting oils to different countries like to Russia and Ukraine. Unfortunately, the prices of oil is falling and therefore, it will hurt the foreign currency reserves of Kazakhstan. The less amount of USD the country has, the more price we/business have to pay for each Forex thereby evaluating Forex better than national currency. As the market experts are telling us that the price of oil may be around 30-40 USD per barrel in near future, the President of Kazakhstan is absolutely right to tell that economic planning should be done on the basis of "new economic realities". The news reports also told us that the exports of #Kazakhstan has slumped by 75% in first half of 2015. This is not a good sign and will play a role to depreciate #Tenge further.

2. Diversification of Exports: I have already stated above that the main exports of Kazakhstan is oil & gas. This is the time Kazakhstan should desperately look for new targets of exports. New goods should be produced, and new markets should be discovered. Therefore, there needs to be revolution in manufacturing, and agricultural exports. Kazakhstan should start thinking if they can manufacture cars, machineries, sports equipments, electronic gadgets and the list will go on and exports them. This is not a task that anyone can do overnight. Expo-2017 in Astana should be aligned with this objective.

3. Introduction/Entry of Eurasian Economic Union and in WTO: The entry to the WTO is too early to talk about.

Let us focus on Eurasian Economic Union (EEU). It has created a free market for all the trading partners. This is good for the champions of free market enterprises. However, it will create a price wars. Ultimately, consumers will benefit but it can also dent economy. There is a talk that goods manufactured in Russia are cheaper and are entering to Kazakhstan. This has hurt the local Kazakh industries as their goods are not competitive in domestic markets and for the exports.

There is a no easy solution for this except that the Kazakh Companies should work on cost reduction and making their products competitive. Unless the domestic markets (at least domestic markets) are made self reliant, the flight of currency continues and it will hurt the country in the long run. Kazakhstan Government will have a role here to create exports oriented units, special economic zones and various exemptions can be granted something like imports duty exemption on Capital Expenditure (on imports of machinery, plants etc.), no income tax for first 10 years of production etc. Foreign companies should be lured to invest in Kazakhstan and export their products.

4. Economic Conditions of trading partners: The problem explained above at No. 3 will get further aggravated by the economic conditions of trading partners. The important trading partners of Kazakhstan are Russia and China and both are showing sign of slowing down. Russia is caught in the problems partially created by itself and to some extent, fueled by the West. The Russia-Ukraine conflict has created the mess in Russian economy and its currency Ruble is sliding. Also, China did not want to lag much behind when its data of exports were not great and intervened to devalue its currency Yuan to give boost to the exports.

Naturally, once the Russian and Chinese currencies are devalued, exports from these two countries to Kazakhstan has gone up putting enormous pressure on Kazakh #tenge (In terms of exact data, the effect after Yuan devaluation is yet to be seen.My arguments are based on presumption for the future.). To absorb such pressure, Government of Kazakhstan did not have any other options than devaluing of #tenge. At this time, #Kazakhstan has gone one step ahead and has not only allowed #tenge to devalue, it has left the #tenge at the mercy of markets. This is a good and positive step and #tenge will find its own sustainable rate in the future based on economic data.

The Article in Chicago Tribune also states the current condition as follows:

The ruble's slide led Kazakhstan to witness an influx of grain, metals, construction materials, oil products and coal from its northern neighbor, according to Kazakh business association Atameken.  

By the current depreciation of #tenge, this problem should be addressed to some extent.

The more on the #Kazakhstan's economy and the course that is likely to be taken by #tenge will be on my next blogpost.

Friday, August 21, 2015

Does devaluation/depreciation of Kazakh Tenge bring inflation/increase of price of goods?

Does devaluation/depreciation of Kazakh Tenge bring inflation/increase of price of goods?

I think this question should be the most important one for the people residing in Kazakhstan at the moment. Will the fall of #tenge cause the price rise of the goods?

Before answering this question based on economic principles, let us see what the authorities are saying on the subject.

Tengrinews reported the Prime Minister Karim Massimov as saying “From August 20 the National Bank and the Government have decided to implement a new monetary policy based on inflation targeting and to renounce the earlier practiced currency corridor”, the country’s PM Karim Massimov said in the government sitting today.

The PM further said “The new exchange rate dependent on supply and demand will put in place conditions for the economy to recover, galvanizing lending and investment operations and enabling to create jobs and reduce the inflation rate down to 3-4%”.

So, PM seems to suggest that the new monetary policy (free floating exchange rate) will have a positive effect on the market when it comes to inflation by keeping the inflation low to the range of 3-5%. This shows that government believes there will not be increase in price of goods and that will not be allowed after the introduction of new monetary policy.

Another report here says that the PM has instructed to the country’s regional governors to prevent price hikes for basic necessities in the nearest time. PM is quoted as saying, “We will make sure there will be no sharp price hikes for essentials. In the longer run, I believe prices should be set by the market forces”.

As per this press briefing, PM thinks inflation will be caused due to new monetary policy but government is committed to make necessary intervention to keep prices low. So, what PM says is that there will not be sudden and sharp rise of prices in Kazakhstan in the short run as government is committed to control inflation but slow price rise in the long run may be possible due to market factors.

Now, let us analyse the situation from economic perspective.

If you read my first post on Kazakh #tenge HERE, you will see that I have attempted to say how devaluation and inflation are not directly related to each other. I know in my previous post, I could not make the point very clear as issue required a separate comment. Hence, I am going to repeat the basic economics before we move forward.

Inflation is caused by excessive money in the market, i.e. due to high liquidity. Because everyone has enough or too much money, the value of extra unit of currency goes down due to "Principle of diminishing marginal utility" and its purchasing power goes down. So, goods are going to become stronger. Here, the national currency of a country is compared with its purchasing power in the same economy. In contrast to that, devaluation or depreciation is a term where one currency of a country is compared with another different currency. It takes into consideration the purchasing power of one currency with respect to purchasing power of another currency. The ability of one currency to buy goods is secondary when we talk of devaluation/depreciation of a currency. However, having said so, any depreciation/devaluation of currency in practice leads to reduction of its purchasing power even within domestic markets. So, Inflation is a likely outcome when rest of the parameters are constant.

Kazakh PM has stated that he would take the measures of inflation control. That essentially means inflation is a likely scenario when devaluation happens. That is where Kazakh Government wants to intervene.

One way to control inflation is to reduce the money in the markets. So, if you are expecting your salary to rise or readjustment to happen, that is where I have a doubt. It is unlikely to happen any time soon. Logic is simple: if you have too much money on your hand, there is a high chance of your spending it. The more money you earn and spend, the more inflation it can cause and can depreciate #tenge further. So, any adjustment or hike of salary is unlikely in the next 4-6 months in my opinion.

What other measures governments can take to control inflation?

  • Increase the interest rates on the loans,
  • Increase the deposit rates (interest rates on fixed deposits) so that you are encouraged to save more and spend less
  • By offering attractive investment plans, like issuance of government bonds, selling share of government companies to public, by increasing interest rate of pension funds but also by increasing its lock-up period
  • National Bank of Kazakhstan may direct Banks to maintain certain amount as reserves/increasing the reserve ratios - so that less money is available for distribution as loans to publics/companies
  • by slashing public spending/unnecessary spending etc.

By employing the above measures, Kazakh Government can contain the inflation for some time and thereafter market forces will determine if costs of goods should go up.

If you see the last point on the measures to be taken for inflation, i.e. by slashing public spending/unnecessary spending etc., this is where there will be a great challenge to balance economic growth vs. inflation. When government reduces its spending, that means there will be low job creation, less hike in salary, less employment and slow down of the economy. Balancing "inflation" and "economic growth" will be the challenge for the Kazakh Government.

Before concluding on this post, I am again asking the same question, "Will not price rise at all? Will government be able to contain inflation?"

To be honest, government can hardly do anything to control prices when it comes to imported goods. For example, it will be expensive to buy imported branded apparels, imported jewellery, electronic items like TV, Phone, Refrigerator, Cars etc. The dealers may reduce their profit margins and may pass the import costs slowly to the buyer but these goods will be gradually expensive.

If you see statement of Kazakhstan PM, he is interested to contain prices of essential commodities. So, when it comes to prices of domestically produced items from the raw materials procured domestically, for example, bread, butter, milk, egg, the inflation caused by the devaluation of #tenge can be avoided. 

Thursday, August 20, 2015

Devaluation of Kazakh Tenge (KZT) - is it time to worry?

If you do not have much time to read my blog but do want to know the answer of my question above, then, it is big NO. However, I would want you to read the whole blogpost and appreciate my arguments in a logical manner.

First of all, the big story of the day: Kazakh Government and the Central Bank of Kazakhstan has decided on August 20, 2015 that it will no longer determine the value of Kazakhstan Currency Tenge (KZT or Tenge) with respect to US Dollar. The government has clarified that the markets will determine the exchange rate and the government will intervene only when the situation becomes extreme worse. 

That means the earlier process of maintaining currency band by National Banks has been done away with and free floating exchange rate will determine the value of #tenge. This is going one step ahead on embracing of free private markets in Kazakhstan and it will be a good move in the long run.

Sentiments in Astana: On August 19, I got a call from my friend saying that #Tenge has devalued by more than 5% and currently trading at more than 195. That made me curious to check the markets as it used to normally trade around 185-187 in Astana. The friend also talked of possible sliding of #tenge in the future (to around 200 #tenge) based on people's discussion in the office. We talked shortly on the impact of such devaluation and I expressed that sliding of currency is nothing much to worry for the commoners.

I have no job currently and I get up late. But, before getting up, I scroll twitter Timeline for half an hour to get the stock of news from around the world, mostly from my home country-India. The tracking of currency market is one of my interests and #Indian currency is also on my radar. Indian currency has devalued by more than 15% in the past two years. After devaluation of Chinese Currency, it has come under more heat. However, India has fair share of exports in the world and there is not much complain about such sliding of Indian Currency. Also, Indian currency market is completely liberalised and based on free currency markets, any appreciation and depreciation of currency is at best left to market forces. Why I bring the example of India here is that I am no stranger to such fluctuation of currency markets. But, today was a different day. 

When I was scrolling the twitter in the morning, I saw a Financial Times News which said loudly that the government has abandoned the prescription of currency exchange band and has allowed the market to determine its price and the #tenge is currently trading at 255 per Dollar. That was quite an unexpected as my "uneducated" and limited knowledge told me that it would hover around 200-210 as I was not expecting doing away of exchange band.

My Reaction after the News:

I have travelled Kazakhstan many times and everytime I come here, I find different exchange rate where #tenge gets depreciated regularly. It is quite regular and normal in emerging developing economy. I remember exchanging my money for 150 KZT per Dollar. Then, I was aware of the long queue of people in front of banks and ATMs to withdraw #tenge and convert it to USD when government devalued #Tenge in 2014 from 150 to 180 KZT. I was interested to see the people's reaction today and went to "Respublica Street" in Astana where there are many money exchange counters. There were sizeable people in front of every money exchange counters, banks. There were few short queues. TV Cameras could be seen. 

I do not know what people were thinking when they could buy some USD but I see it (an attempt to stock USD) as a big problem mostly due to lack of knowledge on the subject regarding impact of Currency markets.

Few photos from #Astana where money exchange counters and banks are displaying different rates:

People looking at Currency Exchange Rate Board for Kazakh Tenge at Respublica Street in Astana

Kazakhstan #Tenge Exchange Rate against USD on 20 August, 2015 in Astana, Kazakhstan

Kazakh Currency Exchange rate display in Astana

Now, let us delve into the subject matter. What happened to Kazakh Currency #Tenge? Is it depreciation of currency or devaluation? What will be the impacts? impacts on common man, tourists, foreigners, local companies, on exports and on imports? Is it good or bad?

Let's take the issue one by one.

What happened to the Kazakh Currency today is what exactly happened to Indian currency in 1991 AD. Before 1991 AD, Indian currency exchange rate was controlled by government and was pegged with major currency baskets. However, India's foreign currency reserves were depleting as market was not favourable for investment due to low and controlled exchange rates. India realised that there is a path of success only when the market is liberalised. And Indian currency market was liberalised which opened a new era of "economic liberalisation". Compare the situation of India in 1991 when it had foreign currency reserves of 2 billion USD and today (in May, 2015), it has a currency reserves of 353 billion USD.

So, what happened today to Kazakhstan #tenge is neither depreciation nor devaluation. It is making #tenge free from the clutch of government regulation/control. It is making currency free to be evaluated by market and based on the demands of the market, the value of the currency will be determined in the coming days. Since #tenge will have exchange rate determined by market, there will be slight change of value everyday and depending on other factors like industrial outputs, demand of exports, investment possibilities and reforms, tenge will shed some value or will gain some.

Let us also think of why #tenge lost so much of value in a single day??

It is simply because the currency was overvalued, #tenge was over-priced. There was too much pressure from government to support #tenge and today, when it became free, #tenge is trying to find its price. It is going to find its stable position, looking for stability. That is the reason why tenge fell by 70 tenge in a day. That is 30% fall in a single day. It tells us #Kazakhstan economy is not that strong at the moment to support #tenge at a current exchange rate. That tells us foreigners (foreign business councils/business enterprises) do not value #Kazakhstan so much at the moment. There may be fluctuation of #tenge in another few days as market is looking for correction and right balance but there WILL NOT be any big free fall or free rise on coming days. Unless Industrial outputs data are too grim on coming days, #tenge should stabilize around 255-265 per USD. Any other rumours, at the moment, is difficult to back.

Now, let us talk about the impacts of this depreciation/devaluation of tenge: This is the most important issues for people residing in Kazakhstan. What is going to happen next? What should they do or what should not they do?

I am using the word "depreciation/devaluation" only to mean that #tenge has lost value against Dollar. So, first of all, let us understand the general impacts of currency depreciation/devaluation:

Since #Tenge has devalued in this process of making it free from government control, devaluation leads to a decline in the value of a currency. That will make exports more competitive and imports more expensive. Think of a simple example, if a Kazakh Citizen exports a bread of 1 USD to its neighbour, it could earn 185 KZT yesterday but today, the same Kazakh Citizen will be earning 255 KZT. Therefore, devaluation of currency will have positive impacts on the exports. It will boost exports.

But, it will have also a negative impacts if it is heavily dependent on imports. In the same example given above, if the Kazakh citizen is importing bread for 1 USD, he could arrange 1 USD by only paying 185 KZT yesterday but today, he will have to pay 255 KZT. This will hurt imports.

This is a basic and straight economics and it equally applies to Kazakhstan. To make the most out of it, Kazakhstan should think of more exports and less of imports. Kazakhstan should think of diversifying of its economy to make most from the exports opportunities and should invest more on the local production to reduce the imports. However, this is for the long term. It will also bring the positive impacts to the balance of payment issues and to the foreign currency reserves.

One positive impact of leaving exchange rate determination to markets is that it will attract the capital inflow/investment in the country and it will have positive effect on the value of the nation's currency and foreign currency reserves. This will apply both in the short term and in the long term.

Let's think of the short term and current issues

IN the short term, this devaluation of #tenge will have some visible impacts on the economy. The following I can think of:

1. Since there can not be sudden increase of exports and imports can not be reduced overnights, the prices of the goods may go up. This may result in inflation. However, you must understand that devaluation will not direct impact on inflation as inflation is caused by over circulation of money thereby money losing its purchasing power. One more thing also to be understood is that government can take inflation controlling measures to offset the effect of current devaluation. We need to wait for the future to understand the real impacts.

2. The people who have taken loan on USD will be the highest impacts as each USD is going to cost extra 70 tenge in average. The sectors that will be affected as per my limited knowledge of Kazakhstan is the realty (real estate). The effects will be of two fold. One the developer of housing apartment will want to sell the houses on high prices to pay their loans and interests which they have taken on USD. If salary or earnings is constant, people will have to depend more on loan to buy houses and banks will be able to charge more with increase in interest rates of house loans. However, we must wait and see how National Bank will intervene on this as they have to balance between the liquidity of funds and inflation. This issue needs a close observation in the future.

What is going to happen next? What should they (people residing in Kazakhstan) do or what shouldn't they/we do?

Most importantly, should we run towards the money exchange counters/banks to sell our Tenge and buy USD and keep stocks of USD?

I think Kazakhstan is too liberal to allow people to buy/sell foreign currencies. It is too liberal to grant loans on USD. That's why though Kazakhstan people are very patriotic and in love with their county, I have not seen the same love when it comes to Kazakhstan Tenge. (In my next post, I will have a piece of advice to Kazakhstan Government on how it can tighten the rule.) The liberalisation of Kazakh Government has given people too much options and worry when it comes to the issues of deciding Kazakh Tenge vs US Dollar. Unless you are planning to permanently settle down in foreign countries or unless you are thinking of investing in foreign companies, do not show "herd mentality" (I am sorry to use this phrase!) by rushing to buy USD. If you have to live in this country and buy milk, bread butter in Kazakh Shops, there is nothing you are gaining by keeping USD with you.

If you are patriotic Kazakh and want to see stable Kazakh Currency, you should show more trust in #tenge and do transactions in #KZT #tenge. If you are running to buy more USD and keep stock of it, that means there is a secret desire inside you that #KZT #tenge should fall after some day and you should book some profits. If this is a desire of yours, you are only wishing for a vicious circle of currency destabilisation and it is going to hurt everyone.

So, keep calm. Hold your Kazakh tenge with you and watch out the movement of markets. We have come a long way from the Soviet collapse and similar situation again in energy rich Kazakhstan is absolutely impossible. Though Kazakhstan needs to see other areas of economy diversification, i.e. other business ideas for exports.

That is all for the day! I will write more on economic and monetary issues of Kazakhstan. Do watch this space and be Optimist!!